Case note

Drafts of an expert's report, and what it takes to give the protection away

Commissioner of Taxation v Alcoa of Australia Ltd [2025] FCA 651

In a transfer pricing audit the revenue authority's solicitors engaged an industry expert to advise on the arm's length consideration. The taxpayer sought the drafts of his report. The Court held they were privileged, and that neither releasing the final report nor letting slip the expert's provisional range waived that privilege.

Court

Federal Court of Australia

Bench

Hespe J

Decided

19 June 2025

On appeal from

Alcoa of Australia Ltd and Commissioner of Taxation [2024] AATA 423

Outcome

Appeal allowed, cross-appeal dismissed, costs to the Commissioner

The facts

In December 2016 the Commissioner began an audit of supply arrangements entered into between 1989 and 2009, concerning the arm's length consideration for supplies of alumina between related companies: [5], [28].

The legal team was assembled in a deliberate sequence. External counsel was briefed in November 2017. In September 2018 the Australian Government Solicitor was engaged to work with counsel and advise on the issues arising in the audit. To assist that advice, the solicitors were briefed to engage an industry expert. In November 2018 the solicitors were formally retained to represent the authority in its dealings with the taxpayer and in any proceedings: [22].

The expert's engagement contract, made in May 2019, was with the solicitors and not with the revenue authority. Privilege in the contract itself was waived, so its terms are set out in the judgment. The services included expert opinions on issues arising in the matter, for the purposes of the solicitors and counsel providing legal advice to the authority and for use in anticipated litigation: [23].

The Tribunal found that litigation had been reasonably anticipated from at least December 2018, by which time the taxpayer had engaged lawyers and clearly rejected the authority's claims: [24].

Two disclosures were said to have waived privilege in the drafts. An email and an unredacted margin comment revealed the expert's provisional view on a pricing range, and the final report was deliberately released.

What was in dispute

Two questions. Were the drafts of the expert's report, and the client's comments on them, privileged at all, given that a final expert report intended for a court is generally not? And if they were, had the privilege been waived by those disclosures?

What the Court decided

The appeal was allowed. The drafts and the comments on them were privileged, and privilege had not been waived.

On the first question the Court adopted the established position that a final report stands differently from the drafts behind it. The final report is brought into existence to be laid before the Court and is presumptively not privileged. Drafts may be in a different position, particularly where the expert has been retained by the party's solicitors and it is expected that the lawyers will advise on the contents and settle the form: [73].

The dominant purpose for which a final expert’s report or final witness statement is brought into existence would presumably be for the purpose of being laid before the Court as the witness’ evidence. Prima facie, it would not be privileged (Attorney‑General (NT) v Maurice [[1986] HCA 80; 161 CLR 475] at 480). However, draft reports, and notes used in preparing a report, may stand at a different position, particularly where the expert has been retained by the party’s solicitors and it is expected that the party’s lawyers will advise on the contents of, and settle the form of, the report. There is nothing improper in such a course.

Hespe J at [73], adopting White J in New Cap Reinsurance Corp Ltd (in liq) v Renaissance Reinsurance Ltd [2007] NSWSC 258 at [29].

It is not disclosure of the substance per se that is conclusive of inconsistency but disclosure and deployment of the substance of legal advice for forensic or commercial advantage which gives rise to the necessary inconsistency.

Hespe J at [120].

On waiver, the governing idea is inconsistency: waiver reflects a judgment that the party's conduct is inconsistent with maintaining the confidentiality the privilege exists to protect, and that is a conclusion of law involving questions of fact and degree, informed by fairness: [85]. The refinement at [120] is what decided the case. Disclosure of the substance is not enough on its own. There must be disclosure and deployment for forensic or commercial advantage, and here there was not.

Two related propositions were accepted. Privilege is not lost merely because the final report is served: [129]. And lawyers commenting on drafts and suggesting wording is a proper course: [131].

The Commissioner did not win everything. The argument that the disclosures were inadvertent failed: [100], [109], [110]. The case cannot be cited for the proposition that an accidental disclosure is cured by being accidental.

Why the decision matters

The operative lesson is about how the work is set up, and it is narrow enough to state precisely. Where expert material may need to be protected, the expert is instructed by the lawyers rather than by the client, on an engagement that records on its face that the purpose is to enable legal advice and to prepare for anticipated litigation. That is what the contract in this case did, and its terms were before the Court because privilege in the contract was waived: [23], [30], [74].

One neutral observation follows from that, and it is a fact about the case rather than an argument. The party that had structured its expert engagement through its solicitors, and succeeded on that basis, was the revenue authority.

The decision is also reassuring about ordinary practice. Drafts of an expert report do not lose protection because the lawyers commented on them or helped settle the form, and the protection over the drafts survives service of the final report. What is required for waiver is something more: putting the substance to use.

It should not be cited for the proposition that circulating drafts destroys privilege. It holds close to the opposite. Nor does it touch the position where an accountant or other non-lawyer sits in the chain, because no such person appears in the judgment.

Where it stands

The decision stands. The citator material read records eight citations across two documents, both applying it approvingly, the later being a decision of May 2026. There is no appellate consideration and no negative treatment. Given how recent it is, the citator should be re-run before the case is relied on.

The judgment construes the general law of privilege and waiver, so it is unaffected by changes to the transfer pricing provisions, although the underlying audit concerned the former Division 13.

Two limits on the reasoning about fairness are worth noting. Releasing a final report without the drafts may be unfair where the release is intended to create an impression that the conclusions were the product of the expert's own independence and expertise when the substantive opinions were in fact shaped by others: [130]. That is the situation in which the answer would differ.

The copy of the judgment read for this note carried an internal date discrepancy about the final report, and its paragraph numbers were reconstructed rather than printed. Any pinpoint taken from this note should be checked against a numbered copy.

A case note by Boettcher Law. It is general information about Australian law and a summary of a published decision, and it is not legal advice on any particular arrangement. Paragraph references are to the reasons of Hespe J.